The past few years have brought tremendous change to the healthcare landscape, largely driven by a pursuit to increase scale, contain costs and exert decision-making control. The trends highlighted in this blog post, along with ideas for how pharma companies need to respond, were already strong before the COVID-19 outbreak. The changes to the life sciences landscape will continue to accelerate as the pandemic creates additional pressures.
The phenomenon to increase scale can be observed at many levels, such as mergers of IDNs and the creation of large regional group practices. It’s most clearly seen through the actions of the large, national, vertically integrated payers. Due to their enormous size, the three largest organizations are referred to as “mega-payers,” and United Health Group, CVS Health and Cigna together cover more than 75% of all prescription claims.
The ongoing COVID-19 pandemic will put significant financial pressure on all entities within the U.S. healthcare ecosystem. While most entities will face significant strains, we believe that by virtue of their size and financial reserve, mega-payers would emerge in a position to make significant disruptive changes. Here’s how:
- Changes to formulary management: Even before the COVID-19 pandemic, mega-payers were taking active steps to manage oncology drugs and other medical benefit products. With the added financial strain caused by COVID-19 and loss of membership due to rising unemployment, mega-payers have two avenues to recoup their losses: by increasing premiums and by more actively managing benefits. It’s in this latter category that we think mega-payers will be looking to manage pharmaceutical spend through tighter control (such as more step-therapies), having more restrictive formularies, and developing their own pathways for oncology and other specialty therapies.
- Changes to mega-payers and regional payers: One of the ongoing trends in the payer space was continued migration of regional accounts toward becoming template accounts for national PBMs. We believe that more regional accounts, facing significant financial strain post-COVID, would relinquish both pharmacy benefit and medical benefit formulary control to national payers (for example, BCBS South Carolina now uses CVS’s Novologix for both pharmacy benefit and medical benefit management). In addition, there’s the added chance that national payers would pick up the lives of regional payers facing significant financial strain.
- Changes to mega-payers and providers: The financial pressure caused by COVID-19 on healthcare providers has been substantial. A recent report suggested that physician practices currently have enough reserve cash to make two payrolls. In the post-COVID world, we can see an acceleration of physician practice acquisition by national entities like OptumCare, which is also actively pursuing opportunities in cancer care. While mega-payers have shied away from acquiring acute care facilities, they have, however, significantly invested in home health and home infusion, and we expect the home health channel to grow in the post-COVID world.
As mega-payers increasingly become better positioned to meaningfully pursue value-based care, pharma manufacturers need to proactively prepare for this shift now rather than wait for the dust to settle. Currently, most pharma manufacturers continue to employ value strategies that are best designed for a fee-for-service world, with a focus on rebating and contracting. As mega-payers evolve their business model, pharma companies will need to speak the same language of value-based care and innovation as they pursue the changing mega-payers. Pharmaceutical manufacturers have opportunities to provide value to mega-payers beyond rebates in three key areas:
1. Value-based benefits design: Pharmaceutical manufacturers have been engaging payers in outcomes-based and value-based contracts (for example, Novartis partnered with Cigna on a value-based contract for Entresto in 2016). However, with increasing analytics sophistication and a focus on generating real-world evidence, payers like Optum are partnering with pharma manufacturers like Merck to develop “Learning Laboratories,” where Optum would be providing expertise in pharmaceutical contracting, HEOR, actuarial services and public policy, while Merck would be providing expertise in health economics and data science, and offer a pharma industry perspective. The partnership will be using Optum’s claims and clinical data to design and test different outcomes-based risk-sharing agreements that would reduce the financial uncertainty around prescription drug reimbursement and could potentially have a broad adoption among other pharmaceutical manufacturers, health insurance companies and PBMs.
2. Disease consulting and guidance: Under this broad rubric, various manufacturers are finding a way to bring value to mega-payers. These partnerships range from the more traditional speaker programs and educational webinars to more complex programs that use digital platforms to ensure adherence and patient safety. A prime example of using a digital platform for monitoring patient adherence and outcomes is the partnership between United Health Group and Dexcom, where UHG is piloting Dexcom’s continuous glucose-monitoring system to track adherence and capture the outcomes data in its test population. Dexcom is also part of Eli Lilly’s Connected Care diabetes care initiative, which leverages innovative technology to improve blood glucose management while collecting data to perform advanced analytics to improve diabetes outcomes. Other tactics could potentially include patient segmentation to identify key patient subsets who would benefit from a new product, thereby improving outcomes and delivering savings and value to the payer.
3. Improving patient safety: Management of polypharmacy patients is still an area where mega-payers struggle, even though there are NCQA indices that track their effectiveness in this field. As of 2018, only about 61% of HMOs have satisfactorily conducted post-discharge medication reconciliation for their Medicare-eligible members.
As these mega-payers evolve, pharma needs to move away from the short-term, rebate-driven formulary access mindset toward a strategic account management and partnership mindset. This would require building the right B-to-B engagement strategy with mega-payers. The engagement strategy should be built upon the following key elements:
- Executive leadership buy-in is a foundational prerequisite to ensure successful implementation of B-to-B customer engagement strategy. This should be achieved through the clear articulation of the impact and value-based partnerships that go beyond short-term financial ROI.
- Companies need a dedicated team with strategic account management capabilities trained to have a value-based dialogue with mega-payers on basic topics like quality metrics, total cost-of-care discussions, ICER reviews, health economic analysis, etc.
- Customer insights and business knowledge is critical, and it necessitates dedicated internal capabilities to work collaboratively with the account team to build the appropriate tools and resources to address gaps or needs for the customer. Close coordination between various groups within the enterprise matrix (HEOR, medical affairs, payer marketing, brand marketing, etc.) is an absolute prerequisite if manufacturers want to develop the appropriate offerings—the next big idea—that meet the needs of the mega-payer customers.
- An optimized, coordinated and consistent customer engagement plan reduces duplicate efforts and inconsistencies among the various teams (such as the national accounts team, regional accounts team, health systems and sales teams, trade team, specialty pharmacy team, etc.) interacting with the mega-payers, and enables superior customer experience and the best outcome. Additionally, there needs to be a closed-loop feedback system in place to periodically assess the effectiveness of this customer engagement strategy.
- Finally, appropriate incentive compensation is needed for the teams to move beyond rebates and contracting toward building a partnership-minded engagement strategy with a longer time horizon. Interactions that build upon one another and recognize the long-term goals of the customer will be critical to changing the engagement dynamic between pharma manufacturers and mega-payers.
The emergence and evolution of sophisticated mega-payers pose a unique challenge to pharma, and this will be exacerbated by COVID-19. Pharma companies need to be more proactive in developing an optimized and forward-looking engagement strategy.